Amended in Assembly March 26, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 627


Introduced by Assembly Member Gomez

February 24, 2015


An act to amend Sectionbegin delete 4431 ofend deletebegin insert 4430 of, and to add Section 4440 to,end insert the Business and Professions Code, relating tobegin delete audits ofend delete pharmacybegin delete benefitsend deletebegin insert benefit managersend insert.

LEGISLATIVE COUNSEL’S DIGEST

AB 627, as amended, Gomez. begin deleteAudits of pharmacy benefits. end deletebegin insertPharmacy benefit managers: contracting pharmacies.end insert

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Existing law imposes specified requirements on an audit of pharmacy services provided to beneficiaries of a health benefit plan, and defines certain terms for its purposes, including, among others, pharmacy benefit manager.

end insert
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The bill would require a pharmacy benefit manager that reimburses a contracting pharmacy for a drug on a maximum allowable cost basis to include in a contract, renewed on or after January 1, 2016, information identifying any national drug pricing compendia or other data sources used to determine the maximum allowable cost for the drugs on a maximum allowable cost list and to provide for an appeal process for the contracting pharmacy, as specified. The bill would also require a pharmacy benefit manager to make available to a contracting pharmacy, upon request, the most up-to-date maximum allowable cost list or lists used by the pharmacy benefit manager for patients served by the pharmacy in a readily accessible, secure, and usable Web-based format or other comparable format. The bill would prohibit a drug from being included on a maximum allowable cost list or from being reimbursed on a maximum allowable cost basis unless certain requirements are met, including, but not limited to, that the drug is not obsolete.

end insert
begin delete

Existing law imposes specified requirements on an audit of pharmacy services provided to beneficiaries of a health benefit plan. Existing law provides that those requirements do not apply to an audit conducted because a pharmacy benefit manager, carrier, health benefit plan sponsor, or other 3rd-party payer has indications that support a reasonable suspicion that criminal wrongdoing, willful misrepresentation, fraud, or abuse has occurred, or to an audit conducted by, or at the direction of, the California State Board of Pharmacy, the State Department of Health Care Services, the State Department of Public Health, or the Medicare program.

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This bill would make nonsubstantive changes to that provision.

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Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 4430 of the end insertbegin insertBusiness and Professions
2Code
end insert
begin insert is amended to read:end insert

3

4430.  

For purposes of this chapter, the following definitions
4shall apply:

5(a) “Carrier” means a health care service plan, as defined in
6Section 1345 of the Health and Safety Code, or a health insurer
7that issues policies of health insurance, as defined in Section 106
8of the Insurance Code.

9(b) “Clerical or recordkeeping error” includes a typographical
10error, scrivener’s error, or computer error in a required document
11or record.

12(c) “Extrapolation” means the practice of inferring a frequency
13or dollar amount of overpayments, underpayments, nonvalid
14claims, or other errors on any portion of claims submitted, based
15on the frequency or dollar amount of overpayments,
16 underpayments, nonvalid claims, or other errors actually measured
17in a sample of claims.

18(d) “Health benefit plan” means any plan or program that
19provides, arranges, pays for, or reimburses the cost of health
20benefits. “Health benefit plan” includes, but is not limited to, a
21health care service plan contract issued by a health care service
P3    1plan, as defined in Section 1345 of the Health and Safety Code,
2and a policy of health insurance, as defined in Section 106 of the
3Insurance Code, issued by a health insurer.

begin insert

4(e) “Maximum allowable cost” means the maximum amount
5that a pharmacy benefit manager will reimburse a pharmacy for
6the cost of a drug.

end insert
begin insert

7(f) “Maximum allowable cost list” means a list of drugs for
8which a maximum allowable cost has been established by a
9pharmacy benefit manager.

end insert
begin insert

10(g) “Obsolete” means a drug that may be listed in national drug
11pricing compendia but is no longer available to be dispensed based
12on the expiration date of the last lot manufactured.

end insert
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13(e)

end delete

14begin insert(h)end insert “Pharmacy” has the same meaning as provided in Section
154037.

begin delete

16(f)

end delete

17begin insert(i)end insert “Pharmacy audit” means an audit, either onsite or remotely,
18of any records of a pharmacy conducted by or on behalf of a carrier
19or a pharmacy benefits manager, or a representative thereof, for
20prescription drugs that were dispensed by that pharmacy to
21beneficiaries of a health benefit plan pursuant to a contract with
22the health benefit plan or the issuer or administrator thereof.
23“Pharmacy audit” does not include a concurrent review or desk
24audit that occurs within three business days of transmission of a
25claim, or a concurrent review or desk audit where no chargeback
26or recoupment is demanded.

begin delete

27(g)

end delete

28begin insert(j)end insert “Pharmacy benefit manager” means a person, business, or
29 other entity that, pursuant to a contract or under an employment
30relationship with a carrier, health benefit plan sponsor, or other
31third-party payer, either directly or through an intermediary,
32manages the prescription drug coverage provided by the carrier,
33plan sponsor, or other third-party payer, including, but not limited
34to, the processing and payment of claims for prescription drugs,
35the performance of drug utilization review, the processing of drug
36prior authorization requests, the adjudication of appeals or
37grievances related to prescription drug coverage, contracting with
38network pharmacies, and controlling the cost of covered
39prescription drugs.

P4    1begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 4440 is added to the end insertbegin insertBusiness and Professions
2Code
end insert
begin insert, end insertimmediately following Section 4439begin insert, to read:end insert

begin insert
3

begin insert4440.end insert  

(a) A pharmacy benefit manager that reimburses a
4contracting pharmacy for a drug on a maximum allowable cost
5basis shall comply with this section.

6(b) A pharmacy benefit manager shall include in a contract,
7entered into or renewed on or after January 1, 2016, with the
8contracting pharmacy information identifying any national drug
9pricing compendia or other data sources used to determine the
10maximum allowable cost for the drugs on a maximum allowable
11cost list.

12(c) A pharmacy benefit manager shall make available to a
13contracting pharmacy, upon request, the most up-to-date maximum
14allowable cost list or lists used by the pharmacy benefit manager
15for patients served by that pharmacy in a readily accessible, secure,
16and usable Web-based format or other comparable format.

17(d) A drug shall not be included on a maximum allowable cost
18list or reimbursed on a maximum allowable cost basis unless all
19of the following apply:

20(1) The drug is listed as “A” or “B” rated in the most recent
21version of the federal Food and Drug Administration’s (FDA)
22approved drug products with therapeutic equivalent evaluations,
23also known as the Orange Book or has an “NA” or “NR” rating
24or a similar rating by a nationally recognized pricing reference,
25such as Medi-Span or First DataBank.

26(2) The drug is generally available for purchase in the state
27from a national or regional wholesaler.

28(3) The drug is not obsolete.

29(e) For contracts entered into or renewed on or after January
301, 2016, a pharmacy benefit manager shall review and shall make
31necessary adjustments to the maximum allowable cost of each
32drug on a maximum allowable cost list using the most recent data
33sources available at least once every seven days.

34(f) For contracts entered into or renewed on or after January
351, 2016, a pharmacy benefit manager shall have a clearly defined
36process for a contracting pharmacy to appeal the maximum
37allowable cost for a drug on a maximum allowable cost list that
38includes all of the following:

39(1) A contracting pharmacy may base its appeal on either of
40the following:

P5    1(A) The maximum allowable cost for a drug is below the cost
2at which the drug is available for purchase by similarly situated
3pharmacies in the state from a national or regional wholesaler.

4(B) The drug does not meet the requirements of subdivision (d).

5(2) A contracting pharmacy shall be provided no less than 14
6business days following receipt of payment for the claim upon
7which the appeal is based to file an appeal with a pharmacy benefit
8manager. The pharmacy benefit manager shall make a final
9determination regarding a contracting pharmacy’s appeal within
10seven business days of the pharmacy benefit manager’s receipt of
11the appeal.

12(3) If an appeal is denied by a pharmacy benefit manager, the
13pharmacy benefit manager shall provide to the contracting
14pharmacy the reason for the denial and the national drug code
15(NDC) of an equivalent drug that may be purchased by a similarly
16situated pharmacy at the price that is equal to or less than the
17maximum allowable cost of the appealed drug.

18(4) If an appeal is upheld by a pharmacy benefit manager, the
19pharmacy benefit manager shall adjust the maximum allowable
20cost of the appealed drug for the appealing contracting pharmacy
21and all similarly situated contracting pharmacies in the state within
22one calendar day of the date of determination. The pharmacy
23benefit manager shall permit the appealing pharmacy to reverse
24and resubmit the claim upon which the appeal was based in order
25to receive the corrected reimbursement.

26(g) A contracting pharmacy shall not disclose to any third party
27the maximum allowable cost list and any related information it
28receives either directly from a pharmacy benefit manager or
29through a pharmacy services administrative organization or similar
30entity with which the contracting pharmacy has a contract to
31provide administrative services for that pharmacy.

end insert
begin delete
32

SECTION 1.  

Section 4431 of the Business and Professions
33Code
is amended to read:

34

4431.  

(a) This chapter shall not apply to an audit conducted
35because a pharmacy benefit manager, carrier, health benefit plan
36sponsor, or other third-party payer has indications that support a
37reasonable suspicion that criminal wrongdoing, willful
38misrepresentation, fraud, or abuse has occurred.

39(b) This chapter shall not apply to an audit conducted by, or at
40the direction of, the California State Board of Pharmacy, the State
P6    1Department of Health Care Services, the State Department of
2Public Health, or the Medicare program.

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